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In terms of regional geology, the Velardena District is located on the eastern flank of the Sierra Madre Occidental mineral belt with the regional geology being characterized by a thick sequence of limestones and minor calcareous classic sediments of the Cretaceous Age.

Several important mines are located in the general vicinity of Velardena, including Gold Corp’s Penasquito Mine and the world’s richest silver mine, Penole’s Fresnillo Mine. Penoles also operates Mexico’s richest gold mine, La Cienega, located to the west of Velardena.

Despite the semi-arid climate with annual rainfall of slightly less than 10 inches, water is available from three company-owned wells near Velardena and these wells have sufficient capacity to cover actual and planned expansion needs. In addition, water has been found at the bottom of some old mine shafts; aquifers have been discovered on their properties and, if needed, water could also be trucked from the regional Francisco Zarco dam.

History has played a very important role at the Velardena property as previous mining work has left a legacy of underground developments that are an essential consideration in ECU’s present production and exploration programs. While some sporadic records show the existence of mining in the district dating back to the early 1800s, it was American Smelting and Refining Company’s (ASARCO) serious efforts beginning in 1902 that initiated substantial developments at Velardena, including mining of both the Terneras and Santa Juana veins. ASARCO also installed a 2,500 tonne per day (tpd) smelter.

ASARCO and other independent contractors worked the mines for about one-quarter century, but low prices, declining grades, political difficulties and metallurgical problems with sulphide ores resulted in closure of the mines in 1926. Following the ASARCO decision, development was limited to small-scale work by local miners until 1994, when William Resources acquired the concessions via their Mexican affiliate, BLM Minera. Following completion of a feasibility study, they completed pre-production development and mine construction. This included expanding an adit through the Terneras vein, which also provided access to the Santa Juana vein. A winze at the Santa Juana Mine was deepened and a ramp was driven, allowing access to lower levels.

ECU Gold, predecessor company to ECU Silver Mining, acquired 93.48% of BLM Minera along with 100% of Minera William in 1997, and began geologic mapping and sampling programs. The adits, ramps and winzes also allowed for underground drilling programs at both Santa Juana and San Juanes Veins prior to 2005 involving 24 holes over 2,542 meters, and this was followed by a 2006 drill program, also underground, of 13 holes over 2,910 meters, with the latter program confirming the continuity of the veins.

In addition, the report showed sulphides mineralization in the Inferred category amounting to 26,141,000 tonnes grading 2.07 gpt gold and 158.4 gpt silver, amounting to 244,228,000 ozs. silver equivalent. They also observed that, “...The stated resources are not materially affected by any known environmental, permitting, legal, title, taxation, socio-economic, marketing, political or other relevant issues...”

In a separate statement, MICON also noted that their estimates of the Mineral Potential for ECU’s Velardena properties were in a range of 41.7 to 87.2 million tonnes grading in a range of 2.08 to 2.82 gpt gold and 167 to 207 gpt silver, totaling 569.5 to 930 million ounces of silver equivalent.

The company operates two mills—a cyanide leach mill and a flotation mill—and both are fully operational. The cyanide leach mill, located 1.2 miles from the Santa Juana mine site, processes oxide mineralized material via a Merrill Crowe precipitation circuit. After crushing to sand or even smaller-sized grains, ore is mixed with a cyanide solution that dissolves the gold, with the resultant pregnant solution later processed to recover the gold into doré bars that are sold to a third-party refinery. Present capacity of the cyanide mill is 500 tpd.

The flotation mill is located adjacent to the town of Velardena and is utilized to process sulphide ore via a lead/silver and zinc flotation circuit plus a pyrite/gold circuit to recover more gold and silver. Recovered lead/zinc concentrates are sold to interested smelters in Mexico or elsewhere and the pyrite-arsenopyrite-gold concentrate can be sold as is or roasted and then processed in the cyanide mill as iron-gold concentrate. The current capacity of the flotation mill is 320 tpd.

In addition to the two production mills, the company also has acquired a second flotation mill (not operational at present) with a capacity of 80 tpd and suitable for large-scale metallurgical testing or special processing of ores different from the main feed. ECU also has its own laboratory on site.